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'Weak' Rita Sends Oil Prices Down MoneyNews
(Headlines - scroll down for full stories) 1. 'Weak' Rita Sends Oil Prices Down Hurricane fatigue has evidently settled over the oil market, as Sunday's light sweet crude delivery contracts slipped $1.24 to just under $63 per barrel. Oil analysts attribute the drop to the relatively weak Hurricane Rita. The storm was hardly as strong as last month's Katrina, having only a diminished impact on key oil platforms that were directly in its path as it made its way across the Gulf of Mexico. During her trip across the Gulf, Rita subsided, going from a Category 5 storm to a Category 3 before hitting the Gulf coastline. The downgrade spared the kind of damage to oil platforms and refineries that could have sent oil prices skyrocketing once again.
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Even though oil buyers dodged a bullet with Rita, market gurus say that the refineries that were shut down by the storm will force tighter supplies of oil and prop up prices for the short term. Some 16 refineries shut down in advance of Rita, while four more refineries are still out of commission about a month after Hurricane Katrina. These facilities account for about 19% of the United States' fuel-manufacturing capacity. Experts add that it is hard to determine what kind of impact that might have on oil. They say it depends on how fast the impacted refineries can get back up and operational. According to the Associated Press, the U.S. Coast Guard said Sunday that it sent patrols over the many offshore oil and natural gas platforms hugging the Gulf Coast and it wasn't aware of any major damage. Officials said they also checked in with refineries and chemical plants via telephone. "The initial report is good at this time," Chief Warrant Officer Adam Wine told the wire service. The AP also reports that gasoline prices rose to $2.78 a gallon - up from $2.76 the day before and 90 cents higher than a year earlier, according to the Oil Price Information Service. The major gasoline manufacturers reported that refineries in the areas hardest hit by Rita – particularly those near Port Arthur, Texas, and Lake Charles, La. – were generally in good shape after the storm. ExxonMobil said its Baytown, Texas, facility will be back up Monday. That refinery pumps out over 550,000 barrels of fuel per day. Oil analyst Peter Beutel of Cameron Hanover Inc. told the AP that intermittent gasoline shortages and higher prices are possible in the week ahead. But he also said he was encouraged by what he considers to be a significant psychological shift among energy traders. "It seems at this point that the market is focusing more on the fact that the damage was less severe than expected than on the fact that there was damage," he said. "The worst is behind us." Editor's Note:
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3. Expert: 50% Energy Cost Hike Coming Even as energy consumers sidestepped the potential effects of Hurricane Rita, the word on future heat and oil prices doesn't bode well for Americans. That's because right now, energy prices are high enough and will likely stay that way, with the biggest winter sticker shock expected in the Midwest, according to one Purdue University agricultural economist. Wally Tyner, professor of agricultural economics, said Midwest homeowners will see some of the highest price jumps in the country when they receive their natural gas bills this winter. "Last winter was warmer than normal in this part of the country, and natural gas prices were lower in the Midwest than elsewhere in the nation," Tyner said. "That means the price rise locally this year will seem even steeper." Tyner said the U.S. Department of Energy predicts an average price increase of 52% this winter for natural gas across the nation and a whopping 71% just for the Midwest. That's based on mid-range Hurricane Katrina recovery price predictions, he said. "About 64% of the Midwest gas heating cost increase is based on the expected increase in natural gas prices, while 7% of the boost is related to the expectation that this winter will be colder than last year," Tyner said. For homeowners, there is no relief in sight. Natural gas prices could go higher, he said, because the 71% increase estimate is based on median predictions. However, if conditions improve, there would be less of a cost increase, though the cost would still be relatively high. Tyner said the only good news is that we probably won't run out of natural gas, as supplies are adequate. Those who use other fuels for heating still won't escape the high cost of staying warm this winter. People who use propane instead of natural gas can anticipate price increases of around 40%. He also said electricity costs are expected to rise 11% and the price of coal should go up 16%. "Consumers should expect to pay close to 50% more this year for all of their energy needs," he said. Tyner said consumers are already cutting back on other purchases based on high gasoline prices. He predicts even more belt-tightening when heating bills hit mailboxes starting next month. "People are going to have to make some tough decisions. A roughly 70% increase in natural gas costs is a big jump that probably most people have not planned for," he said. Editor's Note:
4. Stocks Static After Greenspan Comment Yesterday NewsMax reported on French finance minister Thierry Breton's claims that Federal Reserve Chairman Alan Greenspan told him in a private conversation that the United States has "lost control" of its budget deficit. " 'We have 'lost control' - that was his expression," Breton told reporters after a bilateral meeting with Greenspan. "The United States has lost control of their budget at a time when racking up deficits has been authorized without any control (from Congress)," Breton said. "We were both disappointed that the management of debt is not a political priority today," he added. Breton added that "the situation that is creating tension today on the currency market ... is clearly the American deficit. It seems to me that my counterpart John Snow is completely aware of this, he wants to harness the problem, but it seems to me he doesn't have the room for maneuver." Breton added that after hearing Greenspan talk about inflation, "one has the feeling - though he didn't say so - that interest rates will probably continue to rise slightly until his departure." Breton's comments on Greenspan didn't seem to impact the stock market early on Monday. With Greenspan preparing to speak to the American Banker's Association in Palm Desert, Calif., this afternoon, American stock futures were up in advance of market activity as traders exhaled after Texas and Louisiana sidestepped the wrath anticipated from Hurricane Rita. Dow Jones futures rose 64 points, while Nasdaq and S&P futures climbed 10.5 points and 7.8 points respectively. The major economic news today comes from the National Association of Realtors. That organization is due to release the existing home sales report Monday morning. Economists anticipate an 0.8 % decline in existing home sales in August to an annual rate of 7.1 million. Overseas markets seem more preoccupied with the aftermath of Rita, as traders seemed to exhale after the hurricane showed mercy on the U.S. Gulf region. One key stock - insurance giant American International Group (AIG) - rose in European trading after investors locked onto the news that insurance losses from Hurricane Rita were unlikely to exceed $7 billion and could be as low as $3 billion. Even at the higher projection, experts anticipate that insurance payouts from Rita would still be about one-third of the amount attributed to Hurricane Katrina. Editor's Note:
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